-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T7Ww04krd4bTnf3xsTWbS7ieAn/dVhB8O1XvENXd184eNIHt66qa1uD5eeKJIMgx PJl/ef9YXKouQOaNeJXN2g== 0000939057-96-000045.txt : 19960816 0000939057-96-000045.hdr.sgml : 19960816 ACCESSION NUMBER: 0000939057-96-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST SAVINGS BANK OF WASHINGTON BANCORP INC CENTRAL INDEX KEY: 0000946673 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 911632900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26584 FILM NUMBER: 96612752 BUSINESS ADDRESS: STREET 1: 10 S FIRST AVE CITY: WALLA WALLA STATE: WA ZIP: 99362 BUSINESS PHONE: 5095273636 MAIL ADDRESS: STREET 1: PO BOX 907 CITY: WALLA WALLA STATE: WA ZIP: 99362 10-Q 1 FIRST SAVINGS BANK OF WASHINGTON BANCORP INC. 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended. . . . . . . . June 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------------- to --------------- Commission File Number 0-26584 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. (Exact name of registrant as specified in its charter) Delaware 91-1691604 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10 S. First Avenue Walla Walla, Washington 99362 (Address of principal executive offices and zip code) (509) 527-3636 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of class: As of July 31, 1996 Common stock, $.01 par value 10,474,200 shares * * Includes 824,195 shares held by employee stock ownership plan that have not been released, committed to be released, or allocated to participant accounts. First Savings Bank of Washington Bancorp, Inc. and Subsidiaries Table of Contents PART I - FINANCIAL INFORMATION ITEM 1 - Financial Statements. The Consolidated Financial Statements of First Savings Bank of Washington Bancorp, Inc. and Subsidiaries filed as a part of the report are as follows: Consolidated Statements of Financial Condition as of June 30, 1996 and March 31, 1996 . . . . . . . . . . . . . . . . 1 Consolidated Statements of Income for the quarter ended June 30, 1996 and 1995 . . . . . . . . . . . . . 2 Consolidated Statements of Changes in Stockholders Equity for the quarter ended June 30, 1996 and 1995. . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows for the quarter ended June 30, 1996 and 1995. . . . . . . . . . . . . 4 Selected Notes to Consolidated Financial Statements. . . . . . . . . . 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Recent Developments and Significant Events . . . . . . . . . . . . . . 8 Comparison of Financial Condition at June 30 and March 31, 1996. . . . 8 Comparison of Operating Results for the Quarter ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 9 Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . 12 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 14 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 14 Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Stockholders. . . . . . . . 14 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 EXHIBIT 27- FINANCIAL DATA SCHEDULE. . . . . . . . . . . . . . . . . . 16 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands except for shares) June 30, 1996 and March 31, 1996 (Unaudited) ASSETS June 30 March 31 1996 1996 ------- -------- CASH AND DUE FROM BANKS $ 8,406 $ 9,026 SECURITIES AVAILABLE FOR SALE, cost $283,510 and $290,515 283,603 291,687 SECURITIES HELD TO MATURITY, fair value $1,966 and $2,059 1,966 2,059 LOANS RECEIVABLE HELD FOR SALE, fair value $1,196 and $1,558 1,196 1,558 LOANS RECEIVABLE, net of the allowance for losses of $4,434 and $4,051 443,110 413,737 ACCRUED INTEREST RECEIVABLE 4,557 4,627 REAL ESTATE HELD FOR SALE, net 798 712 FEDERAL HOME LOAN BANK STOCK 10,368 9,030 PROPERTY AND EQUIPMENT, net 6,489 6,582 DEFERRED INCOME TAX ASSET 240 240 OTHER ASSETS 3,952 3,918 ------- -------- $ 764,685 $ 743,176 LIABILITIES AND EQUITY DEPOSITS: Interest bearing $ 370,673 $ 367,248 Non-interest bearing 4,670 6,816 ------- -------- 375,343 374,064 ADVANCES FROM FEDERAL HOME LOAN BANK 210,507 179,419 OTHER BORROWINGS 18,644 19,652 ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 1,604 3,563 ACCRUED EXPENSES AND OTHER LIABILITIES 7,200 8,319 DEFERRED COMPENSATION 1,851 1,618 FEDERAL INCOME TAXES PAYABLE 696 2,399 ------- -------- 615,845 589,034 STOCKHOLDERS' EQUITY: Preferred stock - $0.01 par value, 500,000 shares authorized, no shares issued Common stock - $0.01 par value, 25,000,000 shares authorized, 10,910,625 shares issued; 9,650,005 shares and 10,077,498 shares outstanding & unrestricted at June 30, 1996 and March 31, 1996 respectively 109 109 Additional paid - in capital 107,411 107,370 Retained earnings 57,254 55,343 Unrealized gain on securities held for sale 61 774 Unearned shares of common stock issued to employee stock ownership plan trust 824,195 and 833,127 shares outstanding but restricted at June 30, 1996 and March 31,1996, respectively (8,242) (8,331) Treasury stock; 436,425 shares at June 30, 1996 and none at March 31, 1996 (6,430) -- Shares held in trust for deferred compensation plans (1,323) (1,123) ------- -------- 148,840 154,142 ------- -------- $ 764,685 $ 743,176 ======= ======= 1 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands) (Unaudited) Quarter Ended June 30 1996 1995 ------ ------ INTEREST INCOME: Loans receivable $ 8,932 $ 6,279 Mortgage-backed obligations 3,112 1,517 Securities and deposits 1,741 1,374 ------ ------ 13,785 9,170 INTEREST EXPENSE: Deposits 4,627 4,469 Federal Home Loan Bank advances 2,643 988 Other borrowings 296 109 ------ ------ 7,566 5,566 Net interest income before provision for loan losses 6,219 3,604 PROVISION FOR LOAN LOSSES 513 37 ------ ------ Net interest income 5,706 3,567 OTHER OPERATING INCOME: Loan servicing fees 178 211 Other fees and service charges 164 97 Gain on sale of loans 87 205 Gain on sale of securities 4 0 Miscellaneous 22 29 ------ ------ Total other operating income 455 542 OTHER OPERATING EXPENSES: Salary and employee benefits 1,776 1,493 Less capitalized loan origination costs (391) (228) Occupancy 277 240 Outside computer services 198 178 Real estate operations 17 95 Advertising 50 95 Deposit insurance 214 205 Miscellaneous 743 587 Total other operating expenses 2,884 2,665 ------ ------ Income before federal income taxes 3,277 1,444 FEDERAL INCOME TAXES 884 369 ------ ------ NET INCOME $ 2,393 $ 1,075 ====== ====== Net income per common share: Primary $ 0.24 $ N/A Weighted average shares outstanding 9,835 N/A Cumulative dividends declared per common share: $0.05 $ N/A 2 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (in thousands except for shares) For the Quarter ended June 30, 1996, and 1995 Shares held Unrealized in trust for gain on deferred Common Stock Additional securities Unearned ESOP Shares Treasury stock compen- Number of At par paid-in Retained available Number of Carrying Number of Carrying sation Total Shares Value capital earnings for sale shares Value shares Value plans Equity ------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------ BALANCE, April 1, 1995 -- $ -- $ -- $ 50,099 $ 152 -- -- -- -- -- $50,251 Net income 1,075 1,075 Change in unrealized gain on securities available for sale, net of federal income taxes 366 366 ------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------ BALANCE, June 30, 1995 -- $ -- $ -- $ 51,174 $ 518 -- $ -- -- -- $ -- $51,692 BALANCE, April 1, 1996 10,910,625 $ 109 $107,370 $ 55,343 $ 774 (833,127) $(8,331) -- $ -- (1,123) $154,142 Net income 2,393 2,393 Change in unrealized gain on securities available for sale, net of federal income taxes (713) (713) Cash dividends on stock ($.05/share cumulative) (482) (482) Release of earned ESOP shares 41 8,932 89 130 Purchase of Treasury stock 436,425 (6,430) (6,430) Net change in number and/or carrying amount of shares held in trust for deferred compensation plans (200) (200) ------ ----- ------- -------- -------- ------ ----- ------ ----- ------ ------ BALANCE, June 30, 1996 10,910,625 $ 109 $107,411 $ 57,254 $ 61 (824,195) $(8,242) 436,425 (6,430) (1,323) $148,840 3
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Quarter ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ------ ------ OPERATING ACTIVITIES Net income $ 2,393 $ 1,075 Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes -- -- Depreciation 138 143 Loss (gain) on sale of securities (4) -- Loss (gain) on sale of loan (87) (205) Net changes in deferred loan fees, premiums and discounts 429 (136) Amortization of purchased mortgage servicing rights 20 19 Net amortization of premiums and discounts on investments (463) 15 Provision for loan and real estate owned losses 574 146 FHLB stock dividend (187) (55) Cash provided (used) in operating assets and liabilities: Loans held for sale 362 (996) Accrued interest receivable 70 (109) Other assets (57) (601) Deferred compensation 55 205 Accrued expenses and other liabilities (1,097) 895 Federal income taxes payable (1,337) (319) ------ ------ Net cash provided by operating activities 809 77 INVESTING ACTIVITIES: Purchase of securities available for sale (192,685) (6,577) Principal payments and maturities of securities available for sale 200,151 6,488 Principal payments and maturities of securities held to maturity 99 1,772 Purchase of FHLB stock (1,151) -- Purchase of mortgage servicing rights -- (176) Loans closed and purchase of loans and participating interest in loans (74,730) (40,879) Sale of loans and participating interest in loans 5,863 24,836 Principal repayments on loans 38,367 13,737 Purchase of property & equipment (45) (877) Basis of REO acquired in settlement of loans and disposed of during the period, net of gain 125 -- Funds transferred to deferred compensation trust (19) -- ------ ------ Net cash used by investing activities (24,025) (1,676) ( Continued on next page) 4 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Quarter ended June 30, 1996 and 1995 (Unaudited) (Continued from prior page) 1996 1995 ------ ------ FINANCING ACTIVITIES Increase (decrease) in deposits $ 1,279 $ 967 Proceeds from FHLB advances 163,657 96,232 Repayment of FHLB advances (132,569) (92,000) Decrease in other borrowings (1,008) (915) Decrease in borrowers' advances for taxes and insurance (1,959) (1,875) Compensation expense recognized for shares released for allocation to participants of the ESOP: Original basis of shares 89 -- Excess of fair value of released shares over basis 41 -- Cash dividend paid (504) -- Purchase of treasury stock (6,430) -- ------ ------ Net cash provided by financing activities 22,596 2,409 NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (620) 810 CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 9,026 5,497 ------ ------ CASH AND DUE FROM BANKS, END OF PERIOD $ 8,406 $ 6,307 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 8,279 $ 5,188 Taxes paid $ 2,220 $ 687 Non-cash transactions: Loans, net of discounts, specific loss allowances and unearned income transferred to real estate owned $ 272 $ -- Net change in accrued dividends payable $ 22 $ -- Net change in unrealized gain (loss) in deferred compensation trust and related liability $ 184 $ -- 5 FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC. AND SUBSIDIARIES SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 Note 1: Basis of Presentation The unaudited consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The balance sheet data at March 31, 1996, is derived from audited financial statements of First Savings Bank of Washington Bancorp, Inc. (The Company). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-26584) of the Company. Certain amounts in the prior period's financial statements have been reclassified to conform to the current period's presentation. Effective April 1, 1996 the Bank adopted SFAS No. 122, Accounting for Mortgage Servicing Rights, which amended SFAS No. 65. SFAS No. 122 requires the Bank to allocate the total cost of all mortgage loans sold, whether originated or purchased, to mortgage servicing rights and the loans (without the mortgage servicing rights ) based on their relative fair values if it is practicable to estimate those fair values. If such allocation is not deemed practicable, the entire cost of acquiring the loans should be allocated to the loans with no cost allocated to mortgage servicing rights. SFAS No. 122 is to be applied prospectively. The adoption of this statement is not expected to materially impact the Bank s results of operation or financial condition. Note 2: Earnings Per Share Earnings per share information is not meaningful for any periods prior to December 31,1995, inclusive, since the Company s stock was issued on October 31, 1995. Earnings per share are not presented for periods prior to conversion to stock form, as First Savings Bank of Washington (the Bank ) was a wholly-owned subsidiary of a mutual holding company. Note 3: Securities, Investments; Securities and Deposits Interest Income The following table sets forth the Company s securities portfolio at the dates indicated (in thousands): June 30, March 31, 1996 1996 -------- -------- Mortgage backed obligations $ 179,400 $ 177,185 Other securities-taxable interest 73,956 84,080 Other securities-tax exempt interest 28,811 29,365 Other stocks with dividends 3,402 3,116 -------- -------- Total Securities $ 285,569 $ 293,746 Securities classified as available for sale are carried at estimated market value; securities classified as held to maturity are carried at cost net of unamortized premiums and discounts. 6 Note 3: Securities, Investments; Securities and Deposits Interest Income (continued) The following table sets forth income from securities for the periods indicated (in thousands): Quarter ended June 30 1996 1995 -------- -------- Taxable interest $ 1,046 $ 811 Tax-exempt interest 465 463 Other stock -dividends 43 45 Federal Home Loan Bank stock-dividends 187 55 -------- -------- $ 1,741 $ 1,374 Note 4: Subsequent Events The company completed the acquisition of Inland Empire Bank (IEB) of Hermiston Oregon effective August 1, 1996. The Company paid the former shareholders of IEB $60.8951 per share, in cash, for a total acquisition price of $32.5 million plus costs. IEB had total assets of $158.7 million and total equity of $18.4 million at December 31, 1995. At the Company's annual stockholders meeting held on July 26, 1996 the shareholders approved adoption of the Management Recognition Plan (MRP) and Stock Option Plan (SOP). Under the MRP the Company is authorized to grant up to 436,425 shares of restricted stock to directors, officers and employees of the Bank. The initial grant of approximately 404,000 shares will vest ratably over a minimum five year period starting from the July 26, 1996 MRP approval date. Approval of the SOP authorizes the Company to reserve an aggregate of 1,091,063 shares for issuance pursuant to the exercise of stock options which may be granted to employees and directors. The exercise price of the option is set at 100 to 110% of the fair market value of the stock price at date of grant. The initial grant of approximately 854,000 options will vest over a five year period following the date of grant and any unexercised options will expire after ten years. 7 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General First Savings Bank of Washington Bancorp, Inc. (the Company), a Delaware corporation, is primarily engaged in the business of planning, directing and coordinating the business activities of First Savings Bank of Washington (the Bank). The Bank is a Washington-chartered savings bank the deposits of which are insured by the FDIC under the Savings Association Insurance Fund (SAIF). The Bank conducts business from its main office in Walla Walla , Washington and its 15 branch offices and three loan production offices located in southeast, central, north central and western Washington. The operating results of the Company depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, consisting of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of savings deposits and FHLB advances. Net interest income is primarily a function of the Company s interest rate spread, which is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities, as well as a function of the average balance of interest earning assets as compared to the average balance of interest-bearing liabilities. As more fully explained below, the Company's net interest income significantly increased for both the most recent quarter and the comparable period for the prior year. This increase in net interest income was largely due to the substantial growth in average asset and liability balances. The Company s net income also is affected by provisions for loan losses and the level of its other income, including deposit service charges, loan origination and servicing fees, and gains and losses on the sale of loans and securities, as well as its non-interest operating expenses and income tax provisions. As further explained below, net income also increased reflecting the rise in net interest income which was somewhat offset by a slight decline in other operating income and by increases in operating expenses and provision for income taxes. Provision for income taxes rose due to increases in taxable income and effective tax rates. Management's discussion and analysis of results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to Consolidated Financial Statements. Significant Events The Company instituted a stock repurchase program during the quarter ended June 30, 1996 authorizing the repurchase of approximately 546,000 shares of its outstanding common stock. At June 30, 1996 the Company had repurchased 436,425 shares at an average price of $14.74 per share. Recent Developments The Company completed the acquisition of Inland Empire Bank(IEB) of Hermiston Oregon effective August 1, 1996. The shareholders of IEB received $60.8951 per share, in cash, for a total acquisition price of $32.5 million plus costs. IEB has 5 full service branches plus a remote drive up facility located in northeast Oregon. At December 31, 1995 IEB had total assets of $158.7 million, which included net loans of $182.9 million, deposits of $159.0 million and total shareholder s equity of $18.4 million. Comparison of Financial Condition at June 30 and March 31, 1996 Total assets increased $21.5 million, or 2.9%, from $743.2 million at March 31, 1996 to $764.7 million at June 30, 1996. The majority of the growth was in net loans receivable and was funded primarily with advances from the Federal Home Loan Bank ( FHLB). This growth in assets through the use of FHLB advances was in line with management s plans to leverage the Company's strong capital position. 8 Loans receivable grew $29.0 million, or 7.00%, from $415.3 million at March 31,1996 to $444.3 million at June 30, 1996. The increase in loans was funded primarily by a net increase of $30.1 million, or 15.1%, in FHLB advances and other borrowings from $199.1 million at March 31, 1996 to $229.2 million on June 30, 1996. Securities available for sale and held to maturity decreased $8.2 million to $285.6 million at June 30, 1996 from $293.7 million at March 31.1996. The net proceeds from principal repayments and maturities on securities was used primarily to repurchase $6.4 million of the Company s common stock. Federal Home Loan Bank Stock increased $1.3 million as the company was required to purchase more stock as a result of its increased use of FHLB advances. Changes in the other remaining June 1996 balance sheet areas as compared to March 1996 were not significant. Comparison of Operating Results for the Quarters Ended June 30, 1996 and 1995 General. Net income increased $1.3 million, or 122.6%, from $1.1 million for the quarter ended June 30, 1995, to $2.4 million for the quarter ended June 30, 1996. The year to year operating results were primarily affected by a significant increase in net interest income offset slightly by a decrease in gains from the sale of loans. Net interest income increased $2.1 million from $3.6 million for the quarter ended June 30, 1995 to $5.7 million for the quarter ended June 30, 1996, due, in large part, to a $100.0 million increase in the Company's average balance of net interest-earning assets. Other operating income declined slightly while other operating expencses increased a modest amount. The Company's return on average equity decreased from 8.42% for the quarter ended June 30, 1995, to 6.34% for the quarter ended June 30, 1996, which was expected due to the large increase in equity from the October 31, 1995 stock offering. Interest Income. Interest income for the quarter ended June 30 1996, was $13.8 million compared to $9.2 million for the quarter ended June 30, 1995, an increase of $4.6 million, or 50.3%. The increase in interest income was a result of a $251.1 million growth in average balances of interest earning assets which was moderated by a 13 basis point decrease in the average yield on those assets from 7.71% in the quarter ended June 30, 1995 to 7.58% in 1996. Average loans receivable increased by $126.8 million, or 41.5%, in 1996. Interest income on loans increased by $2.7 million or 42.3%, reflecting the impact of the increase in average loan balances and a slight decrease in the yield on those balances. Loans yielded 8.29% for the quarter ended June 30, 1996, compared to 8.27% for the quarter ended June 30, 1995. The average balance of mortgage-backed securities, investment securities, daily interest-bearing deposits and FHLB stock increased by $124.3 million in the quarter ended June 30, 1996, and interest income from those investments rose by $2.0 million for the June 1996 quarter compared to 1995. The average yield on mortgage-backed securities rose from 6.76% in June 1995 to 6.89% in 1996. The average yield on other investment securities, on the other hand, declined from 6.71% in June 1995 to 5.85% in 1996, which reflects the temporary investment of a portion of the conversion proceeds in lower yielding short term investments as well as generally lower prevailing market rates. Earnings on FHLB stock increased by $132,000 reflecting an increase of $5.9 million in the average balance of FHLB stock for the quarter ended June 1996 and a 185 basis point increase in the average yield on that stock. Interest Expense. Interest expense for the quarter ended June 30, 1996, was $7.6 million compared to $5.6 million for the comparable period in 1995, an increase of $2.0 million, or 35.9%. The increase in interest expense was due to the $151.1 million growth in average interest-bearing liabilities. The increase in average interest-bearing liabilities in the quarter ended June 1996 was largely due to a $127.3 million increase in the average balance of FHLB advances. Average FHLB advances totaled $190.8 million during the quarter ended June 30, 1996, as compared to $63.5 million during the quarter ended June 30, 1995, resulting in a $1.5 million increase in related interest expense. The average rate paid on those advances decreased from 6.2% for the quarter ended June 1995 to 5.56% for the comparable period in 1996.. Average deposit balances increased from $360.4 million for the quarter ended June 1995, to $372.2 million for the comparable period in 1996 while at the same time, the average rate paid on deposit balances stayed at 4.99% for both periods resulting in a moderate increase in deposit interest expense. Other borrowings consists of retail repurchase agreements with customers, and reverse repurchase agreements with investment banking firms secured by certain investment securities. The average balance for other borrowings, including other repurchase agreements, increased $12.1 million from $7.2 million for the quarter ended June 30, 1995, to $19.3 million for the same period in 1996, and the related expense increased $187,000, from $109,000 to $296,000 for the respective periods. 9 The following tables provide additional comparative data on the Company's operating performance (in thousands): Quarter Quarter Ended Ended June 30, June 30, 1996 1995 -------- -------- Average Balances Investment securities and deposits $ 106,525 $ 79,043 Mortgage-backed obligations 181,169 90,221 Loans 432,035 305,275 FHLB stock 9,649 3,735 -------- -------- Total average interest-earning asset 729,378 478,274 Non-interest earning assets 16,620 14,877 -------- -------- Total average assets $ 745,998 $ 493,151 Deposits 372,236 360,425 Advances from FHLB 190,790 63,517 Other borrowings 19,273 7,222 -------- -------- Total average interest-bearing liabilities 582,299 431,164 Non-interest-bearing liabilities 12,213 10,641 -------- -------- Total average liabilities 594,512 441,805 Equity 151,486 51,346 Total average liabilities and equity $ 745,998 $ 493,151 Interest Rate Yield/Expense [rates are annualized] Interest Rate Yield: Investment securities and deposits 5.85% 6.71% Mortgage-backed obligations 6.89% 6.76% Loans 8.29% 8.27% FHLB stock 7.77% 5.92% Total interest rate yield on interest- ------ ------ earning assets 7.58% 7.71% Interest Rate Expense: Deposits 4.99% 4.99% Advances from FHLB 5.56% 6.26% Other borrowings 6.16% 6.07% Total interest rate expense on interest- ------ ------ bearing liabilities 5.21% 5.19% ------ ------ Interest spread 2.37% 2.52% Net interest margin on interest earing assets 3.42% 3.03% Additional Key Financial Ratios [ratios are annualized] Return on average assets 1.29% 0.88% Return on average equity 6.34% 8.42% Average equity / average assets 20.31% 10.41% Average interest-earing assets / interest- bearing liabilities 125.26% 110.93% Non-interest [other operating] expenses / average assets 1.55% 2.17% Efficiency ratio [non-interest (other operating) expenses / revenues] 43.21% 64.28% 10 Provision for Loan Losses. During the quarter ended June 30, 1996, the Bank's provision for loan losses was $513,000, compared to $37,000 for the quarter ended June 30, 1995, an increase of $476,000. The increase in the provision for estimated loan losses is primarily attributable to the overall increase in net loans receivable of $29.0 million for the Quarter ended June 30, 1996 versus $3.6 million for the comparable period in 1995. The allowance for loan losses, net of charge-offs, increased by $383,000 to $4.4 million at June 30, 1996 compared to $4.1 million at March 31, 1996. The allowance for losses on loans is maintained at a level sufficient to provide for estimated losses based on evaluating known and inherent risks in the loan portfolio and upon management s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, current and anticipated economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and determination of the existence and realizable value of the collateral and guarantees securing the loans. Additions to these allowances are charged to earnings. Provisions for losses that are related to specific assets are usually applied as a reduction of the carrying value of the assets and charged immediately against the income of the period. The reserve is based upon factors and trends identified by management at the time financial statements are prepared. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to provide additions to the allowance based upon judgements different from management. Although management uses the best information available, future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions beyond the Bank's control. The following tables are provided to disclose additional detail on the Company's loans and allowance for loan losses (dollars in thousands): At At June 30, March 31, 1996 1996 Loans [ including loans held for sale]: -------- --------- Gross principal $ 497,943 $ 456,466 Less loans in process 46,898 35,244 Less deferred fees and discounts 2,305 1,876 Less allowance for loan losses 4,434 4,051 -------- --------- Total net loans at end of period $ 444,306 $ 415,295 Allowance for loan losses as a percentage of gross principal of loans outstanding 0.89% 0.89% Quarter Ended June 30, Change in allowance for loan losses: 1996 -------- Balance at beginning of the period $ 4,051 Provision for loan losses 513 Recoveries 0 Charge-offs (130) -------- Balance at end of the period $ 4,434 Net charge-offs as a percentage of average net book value of loans outstanding for the period 0.03% Other Operating Income. Other operating income decreased from $542,000 for the quarter ended June 30, 1995 to $455,000 for the quarter ended June 30, 1996. The decrease was primarily due to a $118,000 reduction in net gains from sale of loans which is a result of the reduction in loan sales as management is currently retaining loan production for asset growth. Other Operating Expenses. Other operating expenses increased $219,000 from $2.7 million for the quarter ended June 30, 1995, to $2.9 million for the quarter ended June 30, 1996. The increase in non-interest operating expense for the quarter ended June 1996, reflects increases resulting from growth of the Bank, including increased personnel costs and increases in legal, accounting and insurance expenses relating to operating as a public company. These increases were somewhat offset by a $163,000 increase in capitalized loan origination costs reflecting a $29.3 million increase in loan origination volume compared to the same quarter in 1995. 11 Income Taxes. Income tax expense was $884,000 for the quarter ended June 30, 1996, compared to $369,000 for the quarter ended June 30, 1995. The increased provision for income taxes reflects the greater level of taxable income and a slight increase in the Company s effective tax rate. This increase in effective tax rate reflects the Bank s reduction in the relationship of tax-exempt interest to taxable income. The Company's effective tax rates for the quarters ended June 30, 1996 and 1995 was 26.98% and 25.55%, respectively. Asset Quality The following tables are provided to disclose additional details on asset quality (dollars in thousands). At At June 30, March 31, 1996 1996 Non-performing assets at end of the period: -------- -------- Non-performing loans: Delinquent loans on non-accrual status $ 672 $ 526 Delinquent loans on accrual status 9 12 -------- -------- Total non-performing loans 681 538 REO 798 712 -------- -------- Total non-performing assets at end of the period $1,479 $1,250 Non-performing loans as a percentage of total net loans at end of the period 0.15% 0.13% Ratio of allowance for loan losses to non- performing loans at end of the period 651.10% 752.97% Non-performing assets as a percentage of total assets at end of the period. 0.19% 0.17% Troubled debt restructuring [TDR's] at end of the period (all are performing) $ 154 $ 156 Troubled debt restructuring as a percentage of: total gross principal of loans outstanding at end of the period 0.03% 0.03% total assets at end of the period 0.02% 0.02% Liquidity and Capital Resources The Company's primary sources of funds are deposits, proceeds from loan principal and interest payments and sales of loans, the maturity of and interest income on mortgage-backed and investment securities, and FHLB advances. While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The primary investing activity of the Company is the origination and purchase of mortgage loans through the Bank. During the quarter ended June 30, 1996, the Bank closed or purchased loans in the amounts of $74.7 million. This growth was funded primarily by principal repayments on loans and securities, sales of loans, increases in FHLB advances, and deposit growth. For the quarter ended June 30, 1996, principal repayments on loans totaled $38.4 million and the Bank sold $5.7 million of mortgage loans. FHLB advances increased $31.1 million, for the same quarter and net deposit growth was $1.3 million. The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. During fiscal years 1996, 1995 and 1994, the Bank used its sources of funds primarily to fund loan commitments, to purchase securities, and to pay maturing savings certificates and deposit withdrawals. At June 30, 1996, the Bank had undisbursed loans in process totaling $46.9 million. The Bank generally maintains sufficient cash and readily marketable securities to meet short term liquidity needs. In addition, the Bank maintains a credit facility with the FHLB of Seattle, which provides for advances which in aggregate may equal up to 40% of total Bank assets, which as of June 30, 1996, could give a total credit line of $287.8 million. Advances under this credit facility totaled $210.5 million, or 29.3% of total Bank assets at June 30, 1996. 12 At June 30, 1996, savings certificates amounted to $274.5 million, or 73.1%, of the Bank's total deposits, including $180.4 million which were scheduled to mature within one year. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Management of the Bank believes it has adequate resources to fund all loan commitments by using savings deposits, FHLB of Seattle advances and the sale of mortgage loans and that it can adjust the offering rates of savings certificates to retain deposits in changing interest rate environments. Capital Requirements Federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital. Under current FDIC regulations, insured state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at least 8.0%. At June 30, 1996, the Bank was in compliance with all applicable capital requirements. The following table reflects the Bank's applicable regulatory requirements and the actual levels of regulatory capital at June 30, 1996. Required Actual Percent Amount Percent Amount (dollars in thousands) ------- ------ ------- ------ Tier 1 leverage capital ratio 4.00% $ 28,769 13.04% $ 93,783 Risk-based capital ratios Tier 1 4.00 14,743 25.44 93,783 Total 8.00 29,487 26.65 98,217 The Company, as a bank holding company is regulated by the Federal Reserve Board (FRB). The FRB has established capital requirements that generally parallel the capital requirements of the FDIC for the Bank that are applied to bank holdingcompanys with $150 million or more in total consolidated assets. The Company's total regulatory capital must equal 8% of risk-weighted assets and one half of the 8% (4%) must consist of Tier 1 (core) capital. The following table reflects the Company s applicable regulatory requirements and the actual level of regulatory capital at June 30, 1996. Required Actual Percent Amount Percent Amount (dollars in thousands) ------- ------ ------- ------ Risk-based capital ratios Tier 1 4.00% $ 15,079 39.46% $148,738 Total 8.00 30,158 40.63% $153,172 13 PART II - FINANCIAL INFORMATION Item 1. Legal Proceedings From time to time the Company or its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are considered to have a material impact on the Company's financial position or results of operations. Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Stockholders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K Exhibit 27 - Financial data schedule - see page 16 Reports on form 8-k Not Applicable 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. First Savings Bank of Washington Bancorp, Inc. August 15, 1996 /s/ Gary L. Sirmon ------------------ Gary L. Sirmon President and Chief Executive Officer August 15, 1996 /s/ D. Allan Roth ----------------- D. Allan Roth Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS MAR-31-1997 JUN-30-1996 8406 1 0 0 283603 1966 1966 443110 4434 764685 375343 18644 11351 210507 0 0 109 148731 764685 8932 3112 1741 13785 4627 7566 6219 513 4 2884 3277 2393 0 0 2393 .24 .24 3.42 672 9 154 0 4051 130 0 4434 0 0 4434
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